Oil Futures Pare Gains Monday as Colonial Works to Restore System

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Monday's session little changed. Futures retreaded over an advance to overnight highs as traders monitored efforts to restart the 2.5 million-barrel-per-day (bpd) Colonial Pipeline -- the nation's largest fuel supplier to the East Coast, including heavily populated Mid-Atlantic states -- with the most recent update from the pipeline indicating operational services would likely be fully restored by the end of the week.

On the session, NYMEX June West Texas Intermediate futures settled a tad below $65 per barrel (bbl) after reaching as high as $65.75 per bbl earlier in the session, and the international crude benchmark Brent contract for July delivery finished little changed at $68.32 per bbl. NYMEX June RBOB gained 0.65 cent for a $2.1334 gallon settlement after trading at the highest price point since May 2018 at $2.2170 gallon and NYMEX June ULSD futures moved modestly higher to settle the session at $2.0166 gallon, backing off a $2.0776 16-month high on the spot continuous chart.

Following Friday's cyberattack that prompted the Colonial Pipeline to shut its entire 5,500-mile-long system, the operator restored operations at several smaller lateral lines between terminals and delivery points, with the goal of "substantially restoring operational service of the main Lines 1, 2, 3 and 4 by the end of the week," according to a company statement Monday.

"We continue to evaluate product inventory in storage tanks at our facilities and others along our system and are working with our shippers to move this product to terminals for local delivery," the company said.

To help alleviate potential shortages, the Biden administration on Sunday issued an exemption to allow truckers delivering fuel to 17 states and the District of Columbia to drive more hours per day. Drivers are normally restricted to a maximum of 11 hours of driving during the 14-hour workday. The White House could also temporarily lift the 101-year-old Merchant Marine law known as the Jones Act that governs transport of goods between American ports. That would allow foreign-flagged tankers to help fill the gap left by the pipeline outage through waterborne deliveries, with the journey from the Gulf Coast to New York Harbor taking about six days.

The Department of Homeland Security issued a Jones Act waiver in the aftermath of Hurricane Sandy in 2012, permitting foreign-flagged vessels to carry petroleum products to areas along the East Coast. Industry followers think it's unlikely that a Jones Act waiver would be issued in response to Friday's pipeline disruption, but Colonial Pipeline's progress in restoring its pipeline network and eased trucker road hour constraints with more tools in the toolbox assuaged concerns over potential fuel shortages following an event that many expected wouldn't last beyond a week in the first place.

In outside markets, the U.S. dollar eroded further against a basket of foreign currencies to finish Monday's trade at a 10-week low 90.185 after last week's employment report sharply undercut the narrative for a V-shape recovery. The report showed the economy added a mere 244,000 new jobs in April compared with expectations for 1 million new jobs. What's worse, March's employment figures were also revised lower by 146,000 from earlier estimates to 770,000, while the unemployment rate rose to 6.1%, according to the Bureau of Labor Statistics. Atlanta's Federal Reserve GDPNow Model downgraded its estimates for the second-quarter growth to 11% on May 7 from 13.6% just few days prior.

Chicago Federal Reserve President Charles Evans, however, expects job growth will pick up pace through 2021 despite a massive miss in April.

"I think the disappointing jobs report will be a 'one-month thing' in association with the restarting of the economy," he said Monday.

There are signs that the pace of hiring is likely to continue into the summer, as new jobless claims last week fell below 500,000 for the first time since the early days of the pandemic.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges